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Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 1 of 20(cid:10) UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA WESTERN DIVISION NO. 1:07-CV-117(__) UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) vs. ) COMPLAINT FOR PERMANENT ) INJUNCTION AND OTHER RAYMOND A. RENFROW, ) EQUITABLE RELIEF individually and d/b/a ) IDEAL TAX SERVICES and ) FIRST CLASS LIMOUSINE, ) ) Defendant. ) _________________________________________ ) The plaintiff, the United States of America, complains and alleges against defendant Raymond A. Renfrow, individually and doing business as Ideal Tax Services and First Class Limousine, as follows: 1. This is a civil action brought by the United States pursuant to sections 7402(a), 7407, and 7408 of the Internal Revenue Code (26 U.S.C.) (“I.R.C.”) to restrain and enjoin Renfrow and all those in active concert or participation with him from: a. Acting as a federal tax return preparer or requesting, assisting in, or directing the preparation and/or filing of federal tax returns for any person or entity other than himself; b. Appearing as a representative on behalf of any person or organization before the Internal Revenue Service; c. Understating customers’ tax liabilities as penalized by I.R.C. § 6694; d. Failing to list a tax identification number or to sign tax returns for which he is a tax-return preparer and other conduct subject to penalty under -1- 2292205.2 Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 2 of 20(cid:10) I.R.C. § 6695; e. Engaging in activity subject to penalty under I.R.C. § 6700, including making, in connection with the organization or sale of any plan or arrangement, any statement about the securing of any tax benefit that the defendant knows or has reason to know is false as to any material matter; f. Engaging in activity subject to penalty under I.R.C. § 6701, including preparing or assisting in the preparation of a document related to a matter material to the internal revenue laws that includes a position that he knows would result in an understatement of another person’s tax liability; and g. Engaging in any other conduct subject to any penalty under the Internal Revenue Code or any conduct that interferes with the administration and enforcement of the internal revenue laws. Jurisdiction 2. This suit is brought under Sections 7402, 7407, and 7408 of the Internal Revenue Code (26 U.S.C.) to restrain and enjoin defendant from preparing federal income tax returns for others, engaging in any activity subject to penalty under 26 U.S.C. §§ 6694, 6695, 6700 or 6701, and engaging in conduct that substantially interferes with the proper administration and enforcement of the internal revenue laws. 3. Jurisdiction is conferred on this Court by Sections 1340 and 1345 of Title 28, United States Code, and I.R.C. §§ 7402(a), 7407, and 7408. Defendant 4. Renfrow resides in Elm City, North Carolina within this judicial district. 5. Renfrow conducts business through Ideal Tax Services and First Class Limousine, which are located in Elm City, North Carolina, within this judicial district. -2- 2292205.2 Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 3 of 20(cid:10) Activities of Defendant, Concept Marketing International, National Trust Services and Trust Educational Services 6. Renfrow, operating under the business names of Ideal Tax Services and First Class Limousine, prepares and files fraudulent and frivolous federal income tax returns or claims for refunds for customers. Renfrow generally signs as a paid preparer on the returns he prepares, but he does not list his own Social Security number but instead lists Employer Identification Number issued for Ideal Tax Services and First Class Limousine. 7. Renfrow prepares income tax returns primarily for customers of Concept Marketing International (“CMI”), National Trust Services (“NTS”), and Trust Educational Services (“TES”). 8. CMI was founded by James E. Aldridge, Jr., in October 1991, as a retail and direct sales company that primarily operated a multi-level marketing scheme involving the sale of American Silver Eagle coins. 9. In March, 1993, Renfrow helped Aldridge form a purported trust known as CMI Trust. Aldridge purportedly transferred his CMI business to the CMI Trust. Renfrow, as the principal of Ideal Tax Services, acted as a trustee of the CMI Trust along with Aldridge and his wife, Shirley Aldridge. 10. In 1993, Renfrow formed Ideal Tax Services in order to provide bookkeeping guidance and tax preparation services for CMI clients. As a CMI sales representative, Renfrow also promoted and sold to customers CMI’s purported business plan at nationwide seminars. 11. CMI’s business plan contemplates a four-tiered pyramid commission sales strategy as follows: a. The first-tier sales representative recruited a customer to purchase $1,000 -3- 2292205.2 Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 4 of 20(cid:10) worth of silver coins and would receive a $100 commission. b. Next, the first-tier customer would recruit a second-tier customer to purchase the silver coins. For this sale, the second-tier salesperson received a $50 commission and the first-tier salesperson received a $100 commission. c. This chain of sales extended through two additional tiers. At the third and fourth tier, the first through third-tier CMI customer, who they called members, received commissions for any lower-tier sales. 12. CMI representatives, including Renfrow, falsely advised prospective CMI customers that their purchasing the American Silver Eagle coins would constitute a legitimate home-based business. This was part of a tax-fraud scheme Renfrow devised and promoted under which CMI customers could falsely claim to have home-based businesses in order to fraudulently deduct personal living expenses from their taxable income, including deductions for such non-deductible items as groceries, furniture, clothing, housekeeping, utilities, and rent. 13. CMI explained its false promise to increase customers’ income while reducing tax liability in its mission statement, entitled “A Different Economic Reality,” which stated that CMI has the resources, resolve, and intent to return control of a family’s financial destiny back to the family, and out of the hands of the employer, the Internal Revenue Service, and the Government. 14. CMI has sponsored numerous promotional seminars, mainly in the Kansas City area. As part of these seminars, CMI directed customers to purchase American Silver Eagle coins, and form so-called Unincorporated Business Organizations or business trusts, which CMI promoters falsely promised to reduce their taxes by 97% or more. In addition to urging -4- 2292205.2 Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 5 of 20(cid:10) customers to use sham trusts, CMI instructs customers on how to use sham home-based businesses to fraudulently deduct personal living expenses from their taxable income, including non-deductible items such as groceries, furniture, clothing, housekeeping, utilities, and rent. 15. In the mid-1990s, Renfrow and Aldridge formed a series of sham trusts to be used in connection with the CMI promotion. These trusts were used to promote the sale of a sham- trust tax-fraud scheme. 16. In January of 1994, Renfrow helped Aldridge establish the Aldridge Family Trust (“AFT”) and the Liberty Commerce Group Trust (“LCGT”). AFT was both the grantor and beneficiary of the LCGT trust. Aldridge and his wife Shirley were the trustees of LCGT. 17. Renfrow and Aldridge created LCGT to market and distribute sham-trust packages consisting of a multi-tiered web of sham trusts, designed to purportedly receive customers’ income and purportedly hold title to customers’ assets and pay their expenses, while purporting to exempt their income and assets from taxation. 18. LCGT contracted with a sham-trust promoter called National Trust Services (“NTS”), which was created by Leroy E. Fritts and Roderick Prescott, to have NTS sell its sham- trust scheme to LCGT and CMI customers. Renfrow, as CMI’s principal income tax preparer, also prepared fraudulent federal income tax returns for NTS customers based on the NTS sham- trust tax-fraud scheme. By 2002, Renfrow was preparing false and fraudulent income tax returns for CMI, NTS, and TES customers. 19. NTS and TES salespersons instructed customers to create at least two so-called “complex” trusts generally consisting of a sham business trust and a sham family trust. NTS and TES representatives further advised customers to purportedly transfer their businesses and -5- 2292205.2 Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 6 of 20(cid:10) business assets into the business trust. 20. Thereafter, the business continued to operate as it did before, except that: (1) the business trust would pay rent to either the family trust or a “holding” trust for the purported use of equipment or office space and then take a tax deduction for the rent paid as a “business expense”; (2) the business trust distributed any net income to the family trust; and (3) the family trust purported to reduce its federal income tax liability by 97% by deducting non-deductible personal expenses, including personal household expenses. 21. Prescott directed many TES and TES customers who purchased TES and NTS sham trusts to have their federal income tax returns prepared by Samuel Fung. As part of the tax-fraud scheme, Fung prepared income tax returns that falsely understated his customers’ income tax liabilities by deducting personal expenses that customers purportedly assigned to the sham TES and NTS trusts. 22. On June 2, 2003, a federal court permanently enjoined Prescott from selling the sham-trust tax-fraud scheme, individually and through TES, Case No. 03:02-cv-692-L-JFS (S.D. Cal.). The injunction order is available at www.usdoj.gov/tax/prtax/txdv03332.htm. 23. While the injunction suit against Prescott was pending, Renfrow purchased his own series of sham trusts from TES in 2002 and 2003. This included the Renfrow Family Foundation Trust, Renfrow Group Trust, and the Renfrow Family Trust. In keeping with Prescott’s sham-trust tax-fraud scheme, Renfrow named himself and his wife as both the beneficiary and trustee of each trust. 24. On February 11, 2004, a federal court permanently enjoined Fung from preparing income tax returns and representing that customers can deduct personal expenses on their trusts’ -6- 2292205.2 Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 7 of 20(cid:10) federal income tax returns. Case No. 03-cv-3123 (D. Ore. 2003). The injunction order is available at www.usdoj.gov/tax/prtax/txdv04081.htm. 25. Thereafter, on April 12, 2005, Fritts and Prescott were indicted in the Northern District of California for tax evasion, under 26 U.S.C. § 7201, and conspiracy to defraud the United States, pursuant to 18 U.S.C. § 371 for their role in the TES and NTS tax-fraud schemes. 26. The CMI entities and directors have faced similar law-enforcement actions. On January 23, 2004, Aldridge, CMI and Liberty Commerce Group Trust were ordered by the State of Missouri to cease and desist offering or selling notes or evidences of indebtedness in CMI, Liberty Commerce Group Trust, and Continental Fiduciary Management. 27. On June 27, 2006, James and Shirley Aldridge were indicted for filing false income tax returns and aiding and abetting others to file false tax returns. 28. On information and belief, Renfrow is aware of the injunctions issued against Fung and Prescott. Nevertheless he continues to sell sham trusts and prepare fraudulent federal income tax returns based on the fraudulent methods described above. 29. On August 11, 2004, IRS agents interviewed Renfrow and advised him that he was being investigated in connection with possible conduct subject to penalty under IRC §§ 6700 and 6701 and possible improper conduct in preparing tax returns for customers. During this meeting, Renfrow asserted the frivolous argument that the Constitution does not require individuals to file income tax returns and he referred to himself as a “tax protester.” 30. Following Renfrow’s meeting with the IRS, Renfrow has continued to prepare false income tax returns based on the tax-fraud schemes promoted by NTS and TES, while working with CMI. -7- 2292205.2 Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 8 of 20(cid:10) 31. Renfrow continues to promote the same tax-fraud schemes sold by NTS and TES, at CMI seminars that he has arranged nationwide in 2006 and 2007. Renfrow’s Fraudulent Trust Promotion and Return Preparation 32. From about 1994 through 2002 Renfrow sold a “Complex Trust System” package through his affiliation with NTS and TES. Renfrow has also prepared false and fraudulent federal income tax returns for NTS and TES customers who have used the complex-trust scheme. 33. The typical “Complex Trust Package” sold by NTS, TES, and CMI calls for an individual to create a family trust, a business trust, and a private charitable trust, all of which are shams. NTS and TES representatives promoting this trust arrangement, including Renfrow, advised customers to transfer their businesses into the business trust, and to transfer personal property into the family trusts. 34. In each instance, the trust instruments provided as part of the Complex Trust System names the individual customer as the grantor and trustee of the trusts. In many cases, Renfrow is also named as the trustee of the trusts he has sold to customers of NTS, TES, and CMI. 35. The individual customer, as grantor or trustee, continues to have complete control over the assets that were purportedly transferred to the trusts. In addition, the customer who purchased the Complex Trust System is usually the signatory on the bank accounts opened in the various trusts’ names, thereby giving the individual control over any funds purportedly belonging to the trusts. 36. As CMI’s tax advisor, Renfrow directs customers to conduct their purported CMI -8- 2292205.2 Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 9 of 20(cid:10) businesses through the business trusts. Renfrow prepares business trust returns for customers based on this fraudulent method, which includes improper deductions for the customers cell phone use, CMI meeting fees, and the cost of the silver coins purchased from CMI as purported business expenses. 37. Next, Renfrow prepares trust tax returns that falsely purport to distribute the net income of the business trust to the customer’s family trust in an attempt to prevent the business trust from incurring any federal income tax liability. 38. The Complex Trust System then calls for the customer, as the trustee of the family trust, to sign a resolution designating his or her personal residence as the “trust headquarters.” Thereafter, under Renfrow’s sham-trust scheme, the family trust improperly deducts — as purported business expenses — all expenses associated with the maintenance and operation of the “trust headquarters.” These include the customer’s personal expenses such as insurance on the house, utilities, home repairs, and homeowner’s association fees. 39. The effect of complex-trust tax-fraud scheme is that participants live in the same residence and operate the same business as they did before participating in the program. Under the program, participants’ living expenses are paid from the participants’ earnings just as they were before creating the trusts. The trusts are shams because participants receive the full benefit of, and have full control over, all trust funds. The only substantive change in the participants’ regular business and lifestyle activities is the purported benefit of no taxation. 40. The trusts used by Renfrow’s customers are operated for the benefit of the owner, are devoid of economic substance and are shams for federal tax purposes. The program constitutes an improper assignment of income and a fraudulent transfer of assets. -9- 2292205.2 Case 5:07-cv-00117-FL Document 1-1 Filed 03/22/2007 Page 10 of 20(cid:10) 41. For example, Renfrow prepared the 2002 and 2003 federal trust income tax returns for the purported trusts of a customer in Raytown, Missouri. In furtherance of the scheme, Renfrow prepared federal trust returns (Forms 1041) for the business trust that both reported income paid from CMI. On the business trust returns, Renfrow reported distributions of the net income to the family trust. On the Forms 1041 for the family trust for the same year, Renfrow deducted the Raytown, Missouri customer’s personal living expenses on the return, including expenses paid to maintain the trust “headquarters,” which was the customer’s home. 42. Renfrow knew or had reason to know this trust arrangement was a sham. Renfrow’s Participation in the Concept Marketing International Tax-Fraud Scheme 43. Renfrow is the Regional Sales Director and a trustee of the CMI trust. In 2000, Renfrow, individually and through his business, Ideal Tax Services, agreed to provide tax preparation and training courses for CMI customers. 44. As part of that agreement, Renfrow has conducted monthly “Income Tax Boot Camps” throughout the country in 2006 and 2007, to promote tax-fraud schemes. 45. At these seminars, Renfrow instructs customers on the use of a sham home-based business to deduct personal living expenses from the customer’s taxable income, including among other things, groceries, furniture, clothing, housekeeping, utilities, and rent. Renfrow promotes a tax-fraud schemes that use multiple sham Schedule C businesses for the ostensible purpose of legal tax savings. 46. As part of the scheme, Renfrow and CMI sell to customers American Silver Eagle coins, and falsely advise customers that purchasing the coins from CMI constitutes a bona fide business for the participant. -10- 2292205.2